To answer this question, you need to understand the concept of parameter entities and where they can appear.
Parameter entities are used in Document Type Definitions (DTD) files to define reusable pieces of markup. They are used to make the DTD more modular and easier to maintain.
Option A) xml file - Parameter entities cannot appear in XML files. XML files are used to store and transport data, and they do not support the use of parameter entities.
Option B) dtd file - This option is correct. Parameter entities can appear in DTD files. DTD files are used to define the structure and constraints of an XML document, and parameter entities are used to define reusable parts of the DTD.
Option C) xsl file - Parameter entities cannot appear in XSL files. XSL files are used for transforming XML documents into other formats (such as HTML or PDF), and they do not support the use of parameter entities.
Option D) Both 1 and 2 - This option is incorrect. Parameter entities can only appear in DTD files (option 2), not in XML files (option 1).
Therefore, the correct answer is B) dtd file.